Forex Markets Cope With New Threats

Market volatility in the United States and abroad has created uncertainty in a number of markets, with the foreign exchange sector being no exception.

While the specter of debt is rising in the western world, intervention risk has also reared its head, FOREX reports.

Even formally reliable currencies, such as the Swiss franc and Japanese yen, have failed to offer security. Reuters reported earlier this week that rumors the Swiss National Bank would step in to hold back currency appreciation sent the franc spiraling to a two-week low point.

However, talk of SNB intervention is still mired in "rumor and rhetoric," analysts told the news source. Drops in the franc depend on whether the bank actually does create an exchange-rate target or launch other direct action. Continuing U.S. and European economic uncertainty could end up capping the Swiss franc's losses and bolstering its "safe-haven currency" status.

FOREX says the action taken by SNB and copycat moves by the Bank of Japan show that central banks do not have to give any notice before getting involved in interest rates or markets. Subsequently, investors will now need to work in the "prospect of central bank risk" and take that threat seriously, the source advises. "Not only is the timing of the action unpredictable … so is its effect."